The nasty politics of recessions
What’s at stake: The intricately intertwined relationship between the global economy and politics has resurfaced as the Great Recession appears to have lead to a rise in political extremism.
Kevin O’Rourke notes that our Great Recession has strengthened the political extremes in Europe in a way similar to what happened during and after the Great Depression. The bestseller on Amazon.de is Thilo Sarrazin’s anti-immigrant screed, which Amazon helpfully bundles with a book on young delinquents. In France, the government has been fishing in National Front waters, expelling Roma and linking immigrants with crime. In the Netherlands, Geert Wilders’ anti-Muslim party’s vote in 2006 was 5.9%; in Denmark, that of the Fokeparti was 13.9% in 2007, a huge number compared to the Nazi vote in 1928. For the US, Mark Thoma wonders if we’ve lately headed toward a period of extremism with the success of the Tea Party and where that might lead us. Andrew Leonard notes that perhaps it may be too soon to be making National Front/Tea Party connections, although listening to the way leading Republicans are talking about Islam today suggests that a reluctance to connect such dots betrays a certain over-caution. But the more fundamental point is clear: A government failure to aggressively deal with unemployment, combined with a decades-long trend of increasing income equality, has created fertile ground for extremist, populist rage. And it also applies to the US.
Markus Brückner and Hans Peter Grüner argue that a one-percentage-point decline in growth leads to a one-percentage-point increase in the vote share for right-wing or nationalist parties. The authors also find that the amount of income inequality in a country affects the role that growth plays. Highly unequal countries display a lower growth effect than more equal countries. For countries with a more equal distribution of income, a one percentage point drop in the growth rate may increase the vote share of far right parties by up to two percentage points. Their results suggest that countries should not expect right-wing parties to get majorities unless growth declines quite as much as in the 1920s. Nevertheless, even with a less significant fall in economic growth rates, a rise in support for extreme parties is likely to change political outcomes – for example through their impact on incumbent parties’ political platforms.
Paola Giuliano and Antonio Spilimbergo show in a recent NBER working paper that generations growing up during recessions have different socio-economic beliefs than generations growing up in good times. The authors study the relationship between recessions and beliefs by matching macroeconomic shocks during early adulthood with self-reported answers from the General Social Survey. Using time and regional variations in macroeconomic conditions to identify the effect of recessions on beliefs, they find that individuals growing up during recessions tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions. Moreover, they find that recessions have a long-lasting effect on individuals’ beliefs.
Ian Bremmer, president of political risk consultancy Eurasia group, notes that populism can easily breed protectionism in any country with significant exposure to international markets. If one country finds political advantage in throwing up a wall to protect a vulnerable industry or economic sector, other governments will have a political incentive and justification to do the same.
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